Victoria economic outlook June 2023

Rental scarcity is hitting those on low incomes and in regional areas the hardest, Senior Policy Adviser Ian Hamilton told a CEDA event on Thursday.

“Over a three-year period, the proportion of rentals that are available for under $400 is dropping everywhere,” he said.

“Incomes in the rest of Victoria are not as high as in Melbourne so when that stock drops, they're going to really feel that crunch.”

Mr Hamilton said rent inflation would likely feed into the next Consumer Price Index (CPI) update, with overall inflation reaching eight per cent for Melbourne in December last year, its fastest rate of growth since 1990.

The price growth eased in March 2023 but remained high at nearly seven per cent.

In the Victorian labour market, unemployment remains low but has likely bottomed out, Mr Hamilton said.

“Unemployment is still under four per cent, which is really amazing,” he said.

“We're at a 20-year low for underemployment and a 30-year low for unemployment.

“It's really unlikely that we'll see unemployment drop any lower, though.

“Economists didn't think we could get to four per cent a couple of years ago either, so we're still in unknown territory here.”

After the Victorian budget in May, the state deficit is predicted to keep rising in the coming years, despite the introduction of a new COVID levy.

Mr Hamilton said while the budget revised expenses and new initiatives, it still added $24 billion in spending.

“Some of that is just revising the cost of things that they have to pay for, and then there's also about $12 billion of initiatives in there too,” he said.

“For a government that talked about the need to pay down debts, the budget really did little to do that.”

Mr Hamilton said the temporary 10-year COVID debt levy will only cover some of the new spending in the budget.

“It will bring in $8.6 billion over 10 years and this increases tax revenue by about 16 per cent,” he said.

The state government’s net debt is set to increase from $116.7 billion this year to $162.2 billion in 2026.

Mr Hamilton warned that getting back to a surplus requires economic growth to occur and for government assets to deliver real returns.

“If these investments turn out to be more social investments instead of economic investments, you can see them coming back onto the balance sheet at a later stage,” he said.

“If you look at the Metro Tunnel, the West Gate Tunnel and the North East Link, they need to generate an economic return, not just a social benefit, otherwise the budget position gets worse.”